Financial Data and Key Metrics Changes - Revenue for Q3 FY26 was $964 million, representing a 16% year-over-year growth, while operating profit grew 17% year-over-year to $196 million, achieving an operating margin of 20.3% [19][24] - Total gross margin increased to 74.1%, with subscription services gross margin at 75.5% and product gross margin at 72.9% [23][24] - Annual recurring revenue (ARR) grew 17% to $1.8 billion, and total remaining performance obligations (RPO) increased 24% to $2.9 billion [22] Business Line Data and Key Metrics Changes - Product revenue reached $534 million, growing 18% year-over-year, while subscription services revenue was $430 million, up 14% year-over-year, accounting for 45% of total revenue [22] - Total contract value (TCV) sales for storage as a service offerings grew 25% year-over-year to $120 million [22] - The number of customers deploying the Pure Fusion capability has more than tripled since the beginning of the year, indicating strong market demand [7] Market Data and Key Metrics Changes - U.S. revenue was $683 million, growing 22%, while international revenue was $281 million, growing 4% year-over-year [23] - The company added 258 new customers, increasing its penetration of the Fortune 500 to 63% [23] Company Strategy and Development Direction - The company aims to capitalize on the financial benefits from hyperscaler revenues to make significant investments in R&D and sales and marketing to sustain momentum and capture additional profitable growth opportunities [26][28] - The introduction of the Enterprise Data Cloud is expected to enhance customer engagement and drive demand for storage architectures [9][10] - The company is exploring new business model options for hyperscaler engagements that may alter gross margin economics in FY27 [28][72] Management's Comments on Operating Environment and Future Outlook - Management anticipates increased commodity pricing and excess demand will pressure global supply chains, but the company is well-prepared with a resilient supply chain and strong business continuity plans [16] - The company expects revenue for Q4 FY26 to be in the range of $1.02-$1.04 billion, representing approximately a 17.1% year-over-year increase at the midpoint [25] - Management remains optimistic about the growth trajectory, emphasizing that operating profit is expected to grow significantly in FY26 and beyond [80] Other Important Information - The company welcomed Pat Finn as the new Chief Revenue Officer, bringing extensive experience in scaling sales and go-to-market organizations [17] - The company has a strong balance sheet with $1.5 billion in cash and investments, and generated $53 million of free cash flow in Q3 [24] Q&A Session Summary Question: Impact of memory price inflation on margins and revenue - Management explained that commodity pricing affects overall market pricing, and higher prices could lead to increased revenue, although gross margins may remain stable [33] Question: Increase in inventory and its implications - Management noted that the inventory increase was due to strategic purchases and tariff mitigation, and overall inventory levels remain low compared to business size [40] Question: Product gross margin sustainability - Management indicated that higher-end product sales and Portworx license purchases contributed positively to gross margins, and they expect to maintain strong margins moving forward [46] Question: Feedback on Enterprise Data Cloud - Early feedback has been positive, with significant demand for the new cloud-native offerings, indicating a shift in customer engagement [51] Question: Engagements with hyperscalers - Management confirmed ongoing engagements with top hyperscalers and multiple proofs of concept, indicating strong interest in their offerings [60] Question: Changes in demand dynamics due to memory costs - Management acknowledged that while higher prices could constrain demand, the overall demand for data remains strong, particularly with the rise of AI [88] Question: Scaling the hyperscale business - Management emphasized the importance of providing superior solutions and maintaining engagement with hyperscalers to capture a larger market share [110]

Pure Storage (NYSE:PSTG) Q3 2026 Earnings Call December 02, 2025 05:00 PM ET Speaker2Good day and welcome to the Pure Storage third quarter fiscal 2026 financial results conference call. Today's conference is being recorded. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. At this time, I'd like to turn the call over to Paul Ziots, Vice President ...

Financial Data and Key Metrics Changes - Revenue for Q2 FY 2026 was $861 million, representing a 13% year-over-year growth, while operating profit was $130 million with an operating margin of 15.1% [22][28] - Subscription services revenue reached $415 million, up 15% year-over-year, accounting for 48% of total revenue [26] - Total remaining performance obligations (RPO) grew 22% to $2.8 billion, reflecting robust renewals and new commitments [26] - Total gross margin remained strong at 72.1%, with subscription services gross margin at 76.5% [27] Business Line Data and Key Metrics Changes - Strong performance was noted across the entire portfolio, particularly in FlashBlade and core software and services offerings like Evergreen One, Cloud Block Store, and Portworx [22][24] - Total contract value (TCV) sales for Storage as a Service offerings grew 24% year-over-year to $125 million [24] - The FlashBlade E family showed strength, contributing to overall product gross margin improvement [88] Market Data and Key Metrics Changes - U.S. revenue was $577 million, growing 7%, while international revenue was $284 million, growing 26% year-over-year [27] - More than 300 new customers were added, maintaining a 62% penetration rate in the Fortune 500 [27] Company Strategy and Development Direction - The company is focused on the enterprise data cloud architecture, which is transforming how organizations manage data, emphasizing the shift from traditional siloed storage to a software-defined model [9][11] - Continued investment in partnerships with hyperscalers, including Meta, to enhance direct flash technology and expand market presence [25][17] - The introduction of a guidance range for financial metrics aims to align with industry practices and provide flexibility for growth opportunities [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to extend industry leadership despite a variable macro environment, citing strong execution and planning [20] - Positive momentum is expected in the second half of the fiscal year, driven by strong demand signals and an increasing pipeline of large deals [110] - The company anticipates revenue for FY 2026 to be in the range of $3.6 billion to $3.63 billion, representing a 14% year-over-year growth at the midpoint [31] Other Important Information - The company reported a strong free cash flow performance of $150 million, with a free cash flow margin of 17.4% [29] - A new partnership with Nutanix is expected to enhance customer interest and scalability in virtualization environments [58] Q&A Session Summary Question: What is driving the acceleration of growth in the back half of the fiscal year? - Management noted broad-based strength in product lines and improved visibility into the pipeline, contributing to confidence in growth forecasts [36] Question: How has the relationship with Meta evolved? - The relationship is progressing as expected, with deployments on track and revenue recognition beginning [42] Question: What factors contributed to the sequential gross margin improvement? - Management attributed the improvement to revenue mix, product mix, and pricing discipline, with Meta's contribution being less material than anticipated [48] Question: How is the engagement with other hyperscalers progressing? - Early-stage engagements are ongoing, with technology assessments and proofs of concept underway, but still in the initial phases [64] Question: What are the long-term expectations for Meta's contribution? - Management expects to achieve one to two exabytes of deployment this fiscal year, with potential for double-digit contributions in the next fiscal year [70] Question: How should the split between product versus subscriptions be viewed? - Management indicated that both product and subscription revenues are expected to grow, with subscription gross margins being higher than product gross margins [98]

Financial Data and Key Metrics Changes - Revenue for Q2 FY 2026 was $861 million, representing a 13% year-over-year growth [20] - Operating profit was $130 million, resulting in an operating margin of 15.1% [20] - Subscription services revenue reached $415 million, up 15% year-over-year, accounting for 48% of total revenue [25] - Total remaining performance obligations (RPO) grew 22% to $2.8 billion [25] - Free cash flow was $150 million, with a free cash flow margin of 17.4% [28] Business Line Data and Key Metrics Changes - Strong performance in FlashBlade and core software and services offerings, including Evergreen One, Cloud Block Store, and Portworx [20][6] - TCV sales for Storage as a Service offerings grew 24% year-over-year to $125 million [23] - Product gross margin rose to 68%, aligning with long-term expectations [26] Market Data and Key Metrics Changes - U.S. revenue was $577 million, growing 7%, while international revenue was $284 million, growing 26% year-over-year [26] - The company added over 300 new customers, maintaining a 62% penetration of the Fortune 500 [26] Company Strategy and Development Direction - The company is focused on the enterprise data cloud architecture, which transforms data management for organizations [9][13] - Continued emphasis on modernizing IT environments, including partnerships with hyperscalers and financial institutions [11][15] - The introduction of a guidance range for financial metrics to align with industry practices and allow flexibility for growth opportunities [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's momentum and the macroeconomic environment, indicating a positive outlook for the second half of the fiscal year [36][110] - The company anticipates revenue growth of 14% year-over-year for FY 2026, with Q3 revenue expected to be between $950 million and $960 million [29][30] Other Important Information - The company recognized its first revenue from a strategic co-engineering effort with Meta during Q2 [24] - The balance sheet remains strong with $1.5 billion in cash and investments [27] Q&A Session Summary Question: What is driving the acceleration of growth in the back half of the fiscal year? - Management noted broad-based strength in product lines and improved visibility into the pipeline, contributing to confidence in forecasts [35] Question: How has the relationship with Meta evolved? - The relationship is progressing as expected, with revenue recognition beginning and confidence in achieving the forecasted deployment of one to two exabytes [40][42] Question: How much of the gross margin improvement was due to Meta shipments? - Management indicated that while Meta contributed to gross margin improvement, the majority came from product and revenue mix, as well as pricing discipline [48] Question: What are the expectations for the partnership with Nutanix? - The partnership is generating strong customer interest, with plans for general availability by the end of the year [57] Question: How are early engagements with other hyperscalers progressing? - Engagements are progressing well, with technology assessments and proofs of concept underway, but still in early stages [62] Question: What are the demand drivers observed in the quarter? - Demand was steady with above-average linearity, indicating strong macro and competitive environments, along with an increasing willingness from customers to expand their needs [110]

Summary of Pure Storage Conference Call Company Overview - **Company**: Pure Storage - **Industry**: Data Storage Solutions Key Opportunities and Strategic Focus - **Enterprise Growth**: Pure Storage sees significant growth potential in the enterprise sector, focusing on expanding its portfolio and addressing a full suite of enterprise storage needs [4][5] - **AI Integration**: The company is positioned as a leader in providing a comprehensive suite of AI storage solutions, catering to both small and large-scale environments [5] - **Hyperscaler Engagement**: Pure Storage has been actively engaging with hyperscalers, transitioning from initial discussions to design wins and production [5][6] Hyperscaler Market Insights - **Infrastructure Design**: Hyperscalers design their infrastructure stacks holistically, integrating compute, networking, storage, and software, which differs from traditional enterprise environments [6][7] - **Flash Adoption Lag**: Historically, hyperscalers have lagged in adopting flash technology compared to enterprises, but are now recognizing the limitations of hard disk drives and the need for flash solutions [8][9] - **Transition to Flash**: The transition from hard disk drives to flash is driven by the need for improved performance, capacity, and efficiency, particularly in light of power and space constraints [10][11] Design Win with Meta - **Collaboration with Meta**: Pure Storage has been working with Meta for several years, culminating in a design win that emphasizes cost savings, power efficiency, and seamless integration into Meta's existing technology stack [12][14][17] - **Technology Licensing Model**: The business model involves technology licensing and royalties rather than direct hardware sales, allowing Meta to leverage its supply chain [24][25] Competitive Landscape - **Limited Competition**: Pure Storage faces minimal competition from third-party vendors, primarily competing against hyperscalers' internal development efforts and existing technologies [28][46] - **Value Proposition**: The value of Pure's solutions is framed around total cost of ownership (TCO) compared to SSD and hard disk drive systems, emphasizing simplicity, reliability, and efficiency [29][31] Storage as a Service (STaaS) - **Growth of STaaS**: Pure Storage has pioneered storage as a service models, which have gained traction due to their flexibility and adaptability to changing customer needs [34][39] - **Outcome-Based Sales**: The approach focuses on SLA-based sales rather than traditional product sales, allowing for ongoing adjustments to meet customer requirements [35][38] Enterprise Storage Market Outlook - **Market Growth**: The enterprise storage market is expected to grow at low to mid-single-digit rates over the next few years, with Pure Storage aiming to capture a larger market share [41][42] - **Strategic Positioning**: The company is well-positioned to engage in strategic conversations with enterprises, offering a comprehensive solution that spans various storage needs [43] Additional Insights - **Storage Tiers**: Hyperscalers design storage solutions across multiple tiers, from high-performance to archival storage, and Pure's technology aims to provide a unified architecture for these diverse needs [50][52] - **Operational Margin Accretion**: The licensing model is expected to be accretive to operating margins, with potential improvements in gross margins as well [32][33]

Financial Data and Key Metrics Changes - Q1 revenue grew 12% year-over-year, reaching $830 million, with operating profit of $83 million and an operating margin of 10.6% [23][26] - Subscription services revenue increased 17% to $406 million, representing over half of total revenue, while annual recurring revenue (ARR) grew 18% to $1.7 billion [25][26] - Total remaining performance obligations (RPO) grew 17% to $2.7 billion, indicating strong renewals and new commitments [25][26] - Total gross margin improved to 70.9%, with subscription services margin at 77.2% [26][27] Business Line Data and Key Metrics Changes - Storage as a Service (SaaS) solutions saw a 70% increase in total contract value (TCV) sales, reaching $95 million, driven by large Evergreen One deals [23][25] - Product margin rose 1.1 points sequentially to 64%, with expectations for mid-60s product gross margin for the year [27] Market Data and Key Metrics Changes - U.S. revenue grew 9% to $531 million, while international revenue increased 21% to $248 million year-over-year [26] - The company added 235 new customers, achieving a penetration rate of 62% within the Fortune 500 [26] Company Strategy and Development Direction - The company is focused on modernizing IT infrastructure and breaking down data silos, with a strong emphasis on AI and high-performance computing solutions [10][15] - A major partnership with Nutanix was announced to integrate their cloud platform with Pure Storage, aimed at enhancing virtualization solutions [12][15] - The company is expanding its cloud block store integration into a fully managed service available through Azure VMware service [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic uncertainties while maintaining strong performance [18][30] - The company anticipates continued growth in the second half of the year, with a revenue forecast of $845 million for Q2, representing a 10.6% year-over-year increase [30] Other Important Information - The CFO, Kevan Krysler, will be leaving the company after more than five years, with a smooth transition planned [20][21] - The company has a strong balance sheet with $1.6 billion in cash and investments, and Q1 operating cash flow was $284 million [28] Q&A Session Summary Question: Update on hyperscale opportunity with Meta - Management indicated that the evaluation and testing process with Meta is on track, with expectations for significant progress in the second half of the year [39][40] Question: Size of the newly announced AXA offering - The opportunity is seen as niche but substantial, targeting markets like government and large-scale GPU clusters, with expected margins at or above company standards [45][46] Question: Changes in buyer behavior during macro uncertainty - Management noted no significant changes in customer sentiment or purchasing behavior in Q1, with broad-based strength across traditional sales and Evergreen One [51][54] Question: Clarification on subscription margins amid tariff costs - Management stated that they can absorb any potential tariff costs without significantly impacting subscription gross margins [94] Question: Revenue contribution from Meta's one to two exabytes - Some de minimis revenue contribution has been contemplated in the annual guide, expected to be recognized in the second half [72][73] Question: Time to close larger deals - Management reported that larger deals are tracking as expected, with solid momentum in both larger and higher velocity transactions [78]

Financial Data and Key Metrics Changes - Q1 revenue grew by 12%, reaching $830 million, with an operating profit of $83 million and an operating margin of 10.6% [23][28] - Subscription services revenue in Q1 reached $406 million, up 17%, representing over half of total revenue [25] - Annual recurring revenue (ARR) grew 18% to $1.7 billion, while total remaining performance obligations (RPO) grew 17% to $2.7 billion [25][26] - Total gross margin improved to 70.9%, with subscription services margin at 77.2% [26][27] Business Line Data and Key Metrics Changes - TCV sales for Storage as a Service solutions jumped 70% to $95 million, driven by large Evergreen One deals [23] - Product margin rose by 1.1 points sequentially to 64%, with expectations for mid-60s product gross margin for the year [27] Market Data and Key Metrics Changes - U.S. revenue was $531 million, growing 9%, while international revenue was $248 million, growing 21% year over year [26] - The company added 235 new customers, achieving a penetration rate of 62% of the Fortune 500 [26] Company Strategy and Development Direction - The introduction of Fusion 2.0 has been well received, with nearly 100 customers using or testing it [8] - The company is focusing on modernizing IT infrastructure and breaking down data silos, with a strong emphasis on AI and high-performance computing [10][15] - A major agreement with Nutanix was announced to integrate their cloud platform with Pure Storage, enhancing virtualization solutions [12] Management's Comments on Operating Environment and Future Outlook - The near-term view for the year remains largely unchanged despite increased uncertainty in the macro environment [18] - The company expects to deliver 1 to 2 exabytes of solutions to Meta in the second half of the year, with production validation testing on schedule [16][39] - Management remains confident in the ability to outpace competition and grow market share [19][30] Other Important Information - CFO Kevan Krysler will be leaving the company, with a transition plan in place [20] - The company returned $120 million to shareholders through share repurchases and paid $61 million in employee award withholding taxes [29] Q&A Session Summary Question: Update on hyperscale opportunity with Meta - Management indicated that the evaluation and testing process with Meta is on track, with expectations for significant progress in the second half of the year [39][40] Question: Size of the newly announced AXA offering - The opportunity is seen as niche but substantial, targeting government and large-scale GPU clusters, with margins expected to be at or above company standards [45][46] Question: Changes in buyer behavior during macro uncertainty - Management noted no significant changes in customer sentiment or purchasing behavior in Q1, with broad-based strength across sales [51][54] Question: Clarification on subscription margins amid tariff costs - Management expressed confidence in managing tariff costs without significantly impacting subscription gross margins [93] Question: Revenue contribution from Meta's 1 to 2 exabytes - Some de minimis revenue contribution has been contemplated in the annual guide, primarily through a licensing fee model [72] Question: Time to close larger deals - Management reported that larger deals are tracking as expected, with solid momentum continuing into Q1 [78] Question: Comparison of project timelines with Meta and others - The lengthy timeline is attributed to the design cycles of hyperscalers, which include multiple components beyond storage [84][86]

Financial Data and Key Metrics Changes - Q1 revenue grew 12% year-over-year, reaching $830 million, with an operating profit of $83 million and an operating margin of 10.6% [22][24] - Subscription services revenue increased 17% to $406 million, representing over half of total revenue, while annual recurring revenue (ARR) grew 18% to $1.7 billion [23][24] - Total remaining performance obligations (RPO) grew 17% to $2.7 billion, indicating strong renewals and new commitments [23][24] - Total gross margin improved to 70.9%, with subscription services margin at 77.2% [24][25] Business Line Data and Key Metrics Changes - Storage as a Service (SaaS) solutions saw a 70% increase in total contract value (TCV) sales, reaching $95 million, driven by large Evergreen One deals [22][23] - Product margin rose 1.1 points sequentially to 64%, with expectations for mid-60s product gross margin for the year [25][26] Market Data and Key Metrics Changes - U.S. revenue grew 9% to $531 million, while international revenue increased 21% to $248 million year-over-year [24] - The company added 235 new customers, achieving a penetration rate of 62% within the Fortune 500 [24] Company Strategy and Development Direction - The company is focused on modernizing IT infrastructure and breaking down data silos, with a strong emphasis on AI and high-performance computing solutions [7][9] - Strategic partnerships with companies like Nutanix and SK Hynix are aimed at enhancing virtualization and flash storage capabilities [10][15] - The company is committed to maintaining pricing predictability for customers amid tariff-related changes, leveraging its Evergreen model [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic uncertainties while maintaining strong performance [16][28] - The company anticipates continued growth in the second quarter, projecting revenue of $845 million, a 10.6% year-over-year increase [28] Other Important Information - Kevin Chrysler, the CFO, will be leaving the company, with a transition plan in place to ensure continuity [19][20] - The company reported a strong balance sheet with $1.6 billion in cash and investments, and operating cash flow of $284 million [26] Q&A Session Summary Question: Update on hyperscale opportunity with Meta - Management indicated that the evaluation process with Meta is on track, with expectations to deliver one to two exabytes in the second half of the year [36][38] Question: Size of the newly announced AXA offering - The company views the AXA offering as targeting niche markets, with expectations for margins to be at or above standard company margins [42][43] Question: Changes in buyer behavior during macro uncertainty - Management noted no significant changes in customer sentiment or purchasing behavior in Q1, with broad-based strength across sales [50][52] Question: Revenue contribution from Meta's project - Some de minimis revenue contribution from the Meta project has been included in the annual guidance, primarily through a licensing fee model [69][70] Question: Clarification on subscription margins amid tariff costs - Management expressed confidence that subscription gross margins would not be significantly impacted by potential tariff costs due to operational efficiencies [90][91] Question: Investment expectations for future hyperscaler wins - The company expects to see leverage in design and investment requirements as more hyperscalers are added, reducing costs for future projects [93][94] Question: Revenue linearity throughout the quarter - Management reported typical revenue linearity throughout the quarter, with strong performance sustained [97][98]